Accrual Accounting

Introduction

Based on the recent Balance sheet Reviews conducted, the Sector A&IC team came across situations where the recording of Accruals into the correct account was not properly applied by the ORUs.

It is important to note that the business requires clear insight in the Accrual positions which are also disclosed in our annual report.

Therefore, with this mailing, we would like to re-enforce the(some of) current guidance available. Definitions

As per the IFRS accounting Manual:

3.12.10.10 A provision is a liability of uncertain timing or amount. [IAS 37.10]

3.12.10.20 A liability is a present obligation that arises from past events, which is expected to result in the outflow of the entity's resources on settlement. [IAS 37.10]

3.12.10.30 Accruals are liabilities to pay for goods or services that have been received or supplied but not yet paid for or invoiced. The uncertainty of timing and amount generally is less for an accrual than for a provision. Examples of accruals are fees for services rendered such as audit or consulting fees and certain employee benefits such as vacation pay. [IAS 37.11]

Tips & Tricks – Common Errors

Into Annex 1 to this mail you will find an overview how Accruals are classified our Balance Sheets, accordingly to the COA (classification of Accounts) and consequently the split in POCA / FSI.

Below some tip s & tricks and some common errors we noticed…

Make sure the correct classification is made between Accruals, Liabilities and Provisions.

Make sure the correct classification is made within Accruals into the specific accounts.

Accruals are not allowed for ICA charges (due to double count) nor for forecasted items (not in line with IFRS ruling).

Salaries and Wages payable, consist of, next to your normal S&W payable also regular salary components like holiday allowances, bonuses and the additional year-end payment ('13th month').

A split is made in the accounts to separately show the S&W from bonuses! S&W are for

unconditional salary components and bonuses for conditional salary components.

Accrued holiday rights are the outstanding rights of the employees to paid holidays (accrued and not yet taken up). Reference to chapter 4.4.40 of the Accounting Manual.

Special attention is asked for the Other buckets (highlighted yellow), see annex 1. These items are always carefully looked at and it is often noticed that in these accounts accruals are reported which could be specified over the other accounts! Eg, S&W for temp employees, bonuses,

Government, S ubsidies.

These accounts are only to be used, if it is not possible to specify in one of the other

accounts!

Carry, Fright and Duties Payables should not be reported into the account for Other Distributioncosts

Other personnel related accruals, should not consist of normal S&W components or holiday rights.Consultants and Commissions should be recorded in dedicated accounts.

Actions & Contact / Support

In case, based on this guidance given, there are currently errors in your reporting, please ensure they are corrected with MEC November.

May you have any questions, remarks, pls do not hesitate to contact you’re A&IC organization:

APR:Crystal Liu, Lumileds:Joey Bradach, PLS NAM:Govindan Subramaniam, Others:Monique Jonkers

Sector Lighting A&IC

Monique Jonkers

Annex 1: Details on Accruals & split in accounts

Overview how Accruals are classified our Balance Sheets, accordingly to the COA (classification of Accounts) and the POCA / FSI gives us an overview of account split we require for our financial reporting and presentation in the Annual Report, as follows:

COA

17. Accrued Expenses and deferred income

170. Sundry expenses payable

170.1 Salaries & Wages payable

170.2 Commissions payable

170.3 Gas, water, electricity expenses payable

170.4 Carriage, freight and duties payable

170.5 Interest payable

170.6 Interest and costs in installment surcharges.

170.7 Rent payable

170.8 Other transitory liabilities

170.9 Deferred compensation plans

171. Accrued holiday rights

172. Accrued pension costs

173. Government grants received in advance

174. Expenditure incurred on projects subsidized by loans which need not be repaid

175. Firm commitments

176. Derivative instruments-liabilities

177. Derivative instruments-assets

178. Deferred results from sale and lease back transactions

In the Balance sheet reported at consolidated level (in FSI) the split is shown below and consequently on POCA level the specific accounts are available and to be used.R eference is made to the GDM site for detailed information:下载本文